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Financial Knowledge Assessment: Q7A

7.  Net worth is defined as:

  • A.  The difference between monthly income and monthly expenses.
  • B.  The difference between total liabilities and total assets.
  • C.  The difference between current savings and current debt.
  • D.  The difference between current assets and current liabilities.

Explanation:  The correct answer is “B.  The difference between total liabilities and total assets.”  Answer “A” is actually the definition for net income.  “C” can be used to determine whether your savings could cover your debt, but is not the same thing as liabilities and assets, which are a broader category that could include other things.  “D” determines whether or not you would be able to pay off debt that you have accrued within one year.  This is different from “B” because considerations like the value of a home, car, or even computer are not considered current assets.  This is because these assets are not intended to be turned into cash within one year.  Conversely, liabilities like a mortgage, would not be considered as current liability, because the total value of the mortgage will not be paid off within one year. To learn more about net worth, visit the Future Resource page on the MCLD website.

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